Sunday reading 8 January 2017

Welcome back to Sunday reading. This is my first edition of the year. As I’ve been tramping over the holidays, it’s mainly composed of things I started reading back in December.

The best thing I’ve read in January – after striking a few days of wet weather on the track – is Tramping New Zealand’s guide to what to wear tramping:

The theory is to have one set of clothes that is going to get wet during the day, either through precipitation, or perspiration, and one set that stays dry, to keep you cosy at night.

That’s it.

You travel in and out with your dry set, change to the wet for walking, change back out when you have your accommodation sorted to stay warm, clad yourself in the wet in the morning, you were saying how tough you were, etc.

There’s no great benefit in taking two wet, or two dry sets. Just take what you are going to use.

And, maybe, a spare pair of dry socks.

Oh, don’t forget underwear, that doesn’t weigh excessively.

Sounds about right to me. My current theory is that “breathable”, as applied to wet weather gear, is code for “you will get wet before long”. Consequently, you’re probably better off in a wool bush shirt and a plastic poncho than a $500 Gore-Tex jacket.

The Kaikoura earthquake wreaked destruction, tragedy and misery, but it also generated much scientific fascination. Including: what was going on in the Hikurangi Subduction Zone and those mysterious slow-slip events? […]

These slow slip events, they’ve been called “silent earthquakes”?

They’re similar to earthquakes, as slow slip events accommodate more rapid than normal movement on the plate boundary fault, in this case the Hikurangi subduction zone. Unlike earthquakes (which involve slip along faults in a matter of seconds), slow slip events can take weeks or months to occur. Because slow slip events are slow and don’t occur suddenly enough to release seismic energy, we have to use GPS to detect them. Basically, we look for mm-level changes in the position of the land above the slow slip events. East coast North Island slow slip events typically show up as 2-3 cm eastward shifts of the land on the GPS.

The slow slip event we are observing off the North Island’s east coast right now appears to have been triggered by the 7.8 earthquake, probably due to very small stress changes induced by the passing seismic waves from the M7.8 earthquake. We’ve seen slow slip events triggered by earthquakes in New Zealand before. The Te Araroa Earthquake that happened in early September triggered a slow slip event off East Cape. There was also an earthquake near Gisborne in late 2007, that triggered a slow slip event near Gisborne. In this case the M7.8 earthquake appears to have triggered slow slip over a larger part of the Hikurangi plate boundary, going from about southern Hawkes Bay up to East Cape. We haven’t seen this happen simultaneously over such a large area before, and this makes it a really interesting event.

Slow-slip events at tectonic plate boundaries were first discovered in North America’s Pacific Northwest – and it’s a good thing they’re happening there, as pressure would otherwise build up faster for a massively destructive earthquake. As it is, Seattle is in the midst of another tectonic shift in housing development. Mike Rosenberg reports on the building boom in the Seattle Times:

The apartment boom in Seattle has already reached historic heights — more units opened in each of the past four years than ever before.

Now, the real boom is about to begin.

Seattle is set to see almost 10,000 new market-rate apartments open in 2017, nearly twice as many as in any other year in the city’s history.

With the construction surge set to continue through the rest of the decade, rent increases that have hit Seattle about as hard as any city in the country are forecast to be cut in half during 2017.

“It is a pattern that’s registering in a lot of other places,” said Greg Willett, chief economist for the rental firm RealPage.

On the opposite end, Sacramento, Calif., stopped building apartments in the last decade and has now seen its normally tepid rental market surge to become one of the hottest in the nation. Ditto for Oakland.

The Seattle metropolitan area is a bit over twice as large as Auckland, so if we were trying to match their performance it would mean building around 5000 apartments next year.

"Let's have a moment of silence for all those stuckin traffic on their way to the gym to ride a stationary bicycle."—Earl Blumenauer pic.twitter.com/NFybq7aSRm

A lot of the economic commentary from the US in November and December focused on what (if anything) can be done about the regional disparities that are (in part) driving dissatisfaction with the political and economic status quo. More specifically, how do you revive the fortunes of declining manufacturing areas in the Rust Belt?

Paul Krugman, who earned his Nobel for work on trade policy and regional economics, is quite skeptical that any of the likely policies are likely to succeed:

So maybe the answer is regional policies, to promote employment in declining regions? There is certainly a case in principle for doing this, since the costs of uprooting workers and families are larger than economists like to imagine. I would say, however, that the track record of regional support policies in other countries, which spend far more on such things than we are likely to, is pretty poor. For example, massive aid to the former East Germany hasn’t prevented a large decline in population, much bigger than the population decline in Appalachia over the same period.

And I have to admit to a strong suspicion that proposals for regional policies that aim to induce service industries to relocate to the Rust Belt would not be well received, would in fact be attacked as elitist. People want those manufacturing jobs back, not something different. And it’s snooty and disrespectful to say that this can’t be done, even though it’s the truth.

In a subsequent post on his New York Times blog, Krugman also argued that an attempt to use protectionism to break down global value chains and bring manufacturing back to the US would be dangerously disruptive.

On the other hand, Bloomberg View columnist (and economist) Noah Smith takes a more optimistic view. He outlines “four ways to help the Midwest“:

No. 1 Infrastructure

Sick economies and shrinking population have left Rust Belt states and cities unable to pay for infrastructure improvements. As a result, many cities look like disaster areas. The federal government should allocate funds to repair and improve the Midwest’s roads, bridges and trains, and to upgrade its broadband. Sen’s pension bailout idea could also be instrumental in helping states buff up their infrastructure. Better transportation makes it easier for people and goods to flow between cities in a region, and for the region to export products to other places. Infrastructure is doubly important in a region like the Midwest, where winter weather can quickly make travel difficult.

No. 2 Universities

Universities are helpful for regional economic growth. The Midwest has a number of good schools (I went to one of them for my Ph.D.), but more could be built, and existing universities could be expanded. Perhaps even more importantly, local and state governments in the Midwest could work with universities and local companies to create more academic-private partnerships and to boost knowledge industries in places like Ann Arbor, Michigan, and Columbus, Ohio. As things stand, Midwesterners tend to move away as soon as they graduate from college. Creating more industries specifically for these graduates would keep talent in the region.

No. 3 Business Development

Some cities in Colorado have embraced a development policy it calls economic gardening. The program helps provide resources for locals to start their own businesses. It furnishes them with market research and connects them with needed resources. Small businesses provide more employment than large ones, and offer a ticket to the middle class. They also have a chance of growing into large businesses. The Midwest should consider emulating Colorado’s plan, which seems to be getting results.

No. 4 Urbanism

Tech hubs like San Francisco and Austin, Texas, are using development restrictions to keep their population densities in check. That gives Midwestern cities an opening to attract refugees from the high-rent metropolises of the two coasts. Cities like Detroit and Cleveland can work on creating neighborhoods that are attractive to the creative class, while allowing housing development to keep rents cheap. College towns like Ann Arbor can reduce their own development restrictions and allow themselves to become industrial hubs. And cities can copy the crime-fighting techniques of cities like New York and Los Angeles that have become much safer during the past few decades.

By the way, we will probably be facing similar questions in New Zealand. Economist Shamubeel Eaqub has been quite forthright about the problems caused by regional disparities. In Stuff, he writes about the “plight of regions: hope v futility“:

Our regions are growing further apart. Incomes after adjusting for living costs have risen significantly in Auckland and Wellington.

The commercial and political capitals are pulling away from other regions.

Astonishingly, of the remaining 14 regions, only six have experienced real income gains over the last three decades. That is, eight regions have seen declines in real incomes over a three-decade period.

The regional divergences we see today are not new, nor unique to New Zealand. We see similar patterns in other advanced economies around the world too.

While incomes are growing much faster in Auckland and Wellington, there is a large gap between high and low income earners. In contrast, incomes are more equal in the provinces, but more equally low incomes.

The income divergence across our regions is rooted in deeper economic and demographic changes.

Changes in the economy, towards more services sector jobs, is favouring urban sectors.

Globalisation and technological change are offshoring or mechanising manual work – which is affecting provincial economies harder.

Our thinking in local government and economic policy is based on an expectation of continuing growth. Stagnation and decline are seen negatively.

Yet, that is reality of ageing populations and young people leaving the provinces for economic and other reasons for urban centres.

The international evidence from the United Kingdom, United States and France for growth fostering measures is troublingly mixed.

While regional interventions often work for the specific region, it comes at the cost of neighbouring comparable regions.

There is often no net gain for the country as a whole. Worse, once the programmes finish, the benefits also tend to fade in most cases.

Where the growth fostering policies have worked, they had some inherent strength in their location or economic potential, for example natural resources and weather amenable to year round tourism.

Regional development is a topic that needs much further research and attention. There is no recipe that will work in every occasion.

This is a debate that will definitely be worth following closely in the coming year, especially if any new policies get put to the test. For what it’s worth, I agree with Krugman that trade protectionism and industrial subsidies are likely to be ineffective at best, destructive at worst. Smith’s ideas are likely to be useful at the margin, but I doubt that they will succeed in reversing longstanding trends. Similarly, a one-size-fits-all approach to trying to revitalise regions that have had technological, economic, and social trends turn against them is unlikely to work.

One thing that is worth reading if you’re interested in solutions is a paper by Paul Conway, the Productivity Commission’s head of research, entitled Achieving New Zealand’s Productivity Potential. I had a chance to skim it a few weeks back and am planning on writing a full post on it sometime in January.

OK. I've invented the highest visibility cycling jersey ever. I guarantee all drivers will see you in this. pic.twitter.com/wxo6wa5QrK

To close out the week, two more bits on apartments and housing development. First, Jennifer Wolch and Dana Cuff interview Mike Davis, the “chronicler of the California dark side and LA’s underbelly, proclaiming a troubling, menacing reality beneath the bright and sunny facade” (in Boom California). I’ve long been a fan of Davis’s work on cities and the history of Los Angeles. While he’s got a larger, more radical critique of contemporary development, I’m often most struck by his talent for observing small details of urban life. For instance:

The only form of housing that was generally popular, where the tenants had been there for a long time—everybody else was in and out—was the one courtyard apartment complex, with its little gardens and a fountain. The most despised were not the older 1920s tenement fire traps but the dingbats—low-rise six- to twelve-unit apartment buildings with tuck-under parking, built in the fifties and sixties on single family lots. They were designed to become blight in a few decades and constitute a major problem everywhere in Southern California. The other multi-unit types were still durable but it was hard to imagine any alternative for the stucco rubble other than to tear it down—which in fact developers have done, only to replace the dingbats with four- and five-story “super-cubes” that are just larger versions of the same problems.

What happens to nearby property values when low-income housing is built in a neighborhood? They drop, right? Because claiming those non-rich individuals and families bring down housing prices is, apparently, a more palatable argument to make than saying poor people shouldn’t be in the neighborhood. The truth is that low-income housing does basically nothing to the prices of neighboring properties. They keep on rising, just like they did before.

Trulia, the real-estate listings service, dug deep into its data to track home values in areas where low-income housing was built. Author Cheryl Young looked at 3,083 low-income housing projects built from 1996 to 2006 (prior to the price-distorting housing bubble beginning in 2007), in “the nation’s 20 least affordable markets.” With just a few exceptions, the low-income housing had no effect on house prices.

The regional intervention thing brings up the age old issue: is it better to have a greater overall level of economic growth, even if it’s inequitably distributed e.g. 100bn GDP but with a big difference between 1% and others, or to have a lower level that’s more equitably distributed? I.e. if subsidising Southland actually means NZ’s overall growth suffers, but NZ becomes more equitable, it may be better. A lot of poverty literature points out that relativity is what matters

I think a better question would be: do we care about relative standards of living between *people* or between *regions*? If we care more about people, then in some cases the appropriate move will be to allow people to move out of declining regions faster. This is particularly true if we think that the impact of regional development policies is likely to be relatively modest – ie they might slow decline (by keeping a few more people there) but not reverse it.

Consider a thought experiment: Let’s say that your family lived in Detroit in 1960, at the start of its long decline, and they were considering moving away to Palo Alto. Suppose that the government had offered to subsidise permanent Detroit-based jobs for 20,000 people, which would probably cost something like $1bn/year. Let’s assume, to be optimistic, that each subsidised job meant that 2 family members were also retained, as well as another 2 people through a multiplier effect from more dollars floating around in the local economy.

So this rather expensive policy would have kept an additional 100,000 people in Detroit. The problem is that the overall loss in population over the next 50 years was *much* larger. From 1960 to 2010, Detroit’s population shrunk by almost 1 million people.

So: Would your family have been better off to take the subsidised job-for-life in Detroit, or get on the road to Palo Alto?

I know it was probably a rhetorical question but I will answer it anyway. The correct answer is always to get out of declining areas. The people who can move always do. That leaves those who have no option, those without skills, those whose skills are no longer needed, those who refuse to learn or even try to learn new things. The area ends up poor and crime ridden. In the rustbelt the large factories have gone or are going. But even if they wanted to come back they wouldn’t choose those towns to locate to. Why? Because they are not the same places they were when the first large factories were built there. Back then they were go ahead places populated by people who believed in hard work and self reliance as a way to the American Dream. Those folks moved away years ago. In Ohio the few who make it to the University in Columbus are not going to return to their home towns as they don’t really belong in those places anymore. Culturally they are different from the people they left behind. No amount of government subsidy can change that.

It’s very much a philosophical question – your perspective is very much founded in a capitalist mindset (that the “market” determines that Palo Alto will succeed, and Detroit will fail) that is not necessarily always accepted. An alternative might be that the role of government is not merely to “correct” market “failures” but actually to act as *the* market and identify whether or not people should be in Detroit or Palo Alto for particular reasons that may or may not be reflected in the vagaries of the capitalist market.

I could be wrong but I vaguely recall one of the reasons for agricultural subsidisation in the EU was to ensure the survival of a particular “way of life”; think of it as cultural heritage protection! If we can find a few dollars to keep a statue up surely we can find a few dollars to ensure farmers can keep on as they have since Domesday?

Currently, I give up several of my sick days at work into a sick day bank so that some of my workmates can keep on working even when they exceed their leave allocation. I don’t mind doing the same for my comrades in Nelson/Waiouru. Because one day I might be that “sick man”!

I think it’s odd that you’re framing the idea that we should pay more attention to the wellbeing of people, regardless of where they live or what they do as a “capitalist” position.

Also, when I say that it’s difficult for government to make a large difference in the rate that declining regions shrink, or prospering regions grow, I’m making an *empirical* claim, not a judgment about what we should value. Even if you think it would be *desirable* to enact policies to arrest the growth of Silicon Valley or the decline of Detroit, those policies may not work as intended.

As this is an empirical claim, it can be tested and falsified. If there is evidence that regional development policies have succeeded in turning back the tide, without too many unintended consequences, I will revise my position.

Of course it’s capitalist, because from your perspective the relative wellbeing of people (Detroit vs Palo Alto) is a result of the workings of the market. That’s one perspective. It’s just as valid to say “the important thing is that wellbeing is maintained” but not accept that we should simply “respond” to the invisible hand. There is an underlying assumption in your world view that Detroit’s decline and Palo Alto’s growth are not variables but rather absolutes, and the best we can do is respond to them. It reminds me of fatalism and avoids the fact that humanity is master of its own world.

Here’s a thought experiment for you: if the USA had been a socialist country in 1960, do you think the government would have allowed the economic disparities between Detroit and Palo Alto to develop?

And your point on EU farm subsidies misses the point that the goal of the EU and/or its member nations is to maximise their own happiness (however measured) and whatever happens in the developing world is irrelevant. Countries are not altruistic and any altruistic actions are merely designed for the benefit of the host nation (i.e. developing a world market that can later be exploited). As Lincoln once did.. “He then fell to examining the motive that sent him back to the release of the pig. At the first thought, it seemed to be pure benevolence, but, at length, he came to the conclusion that it was selfishness, for he certainly went to the pig’s relief in order (as he said to the friend to whom he related the incident), “to take a pain out of his own mind.” This is certainly a new view of the nature of sympathy; and one which it will be well for the casuist to examine”

HSB – there is a fundamental flaw with the idea of subsidising a way of life – it requires someone else to be capitalist and move with the times to earn the money to pay for this. What if everyone in NZ wanted to keep the ‘traditional way of life’ even if it wasn’t viable anymore? Why should I living in Auckland make financially rational decisions only to subsidise someone else’s ‘way of living’?

Disclaimer – I grew up on a farm in Southland, so quite like the Southland ‘way of life’.

HSB1: Again, you’re sliding between the wellbeing of *people* and the wellbeing of *regions* in an inappropriate way. There is a lot that government can do to improve people’s wellbeing: it can provide universal health care and education, unemployment insurance, and regulate for health and safety and environmental quality. But in most cases these interventions are not (and should not be) place-specific. You should be guaranteed a reasonable standard of health care regardless of whether you live in Detroit or Palo Alto.

Now, you may think that the appropriate thing to do is for government to guarantee a certain level of employment in different locations. That’s fine, but I would argue that it won’t do much good for people’s wellbeing.

As to your thought experiment, I would observe that the former Soviet Union has plenty of rust-belt towns and no Silicon Valley. So my suspicion is that they would both be heavily polluted cities with declining industries and high rates of alcohol and heroin abuse.

Also, EU agricultural subsidies don’t just cost “a few dollars” – they spend the equivalent of almost half of NZ’s GDP, every year, on farm subsidies. This comes at some cost to the traditional ways of life of farm communities in the developing world.

So regardless of the intentions of the policy, it’s got a large enough impact that it’s worth asking critical questions.

Let’s for a moment suspend reality and assume that we could effectively stimulate the regional economy at zero net cost (ie removing the money from Auckland contracts the economy by some amount that the regions then expand by).

Why would it be a worthwhile thing to do? Why not do nothing and avoid the huge effort?

The best approach IMHO is to accept that Whanganui is declining and respond to those challenges and accept that Auckland is booming and respond to those challenges.

In the last quote, “With just a few exceptions, the low-income housing had no effect on house prices” is a terrible statement to leave unexplained. It gives people who want to make the argument about impacts to surrounding property prices a statement that leaves the door open for such low-income housing to be negative.

It seems to be saying the effect of low income housing on house values is the same less than 2000 feet away as up to 4000 feet away. Does that mean you need to make sure it is a hell of a lot further away?

Random South Island related thought (as I have also come back from tramping down there). Why is there so much on-street parking on the main street in Arrowtown, and why is through traffic allowed? It reminded me of High St – the main street was clogged with parked cars (in both 5 minute and 1 hour spots) and a continuing stream of traffic mindlessly going round looking for parking. Meanwhile the footpaths were full of people on both sides and what photos you could get when there wasn’t a car coming downthe road were just full of parked vehicles…it should be pedestrianized!

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